Demand Order Set Aside: Lack of Personal Hearing and Mechanical Adjudication Violate Natural Justice

By | June 5, 2025
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I. Demand Order Set Aside: Lack of Personal Hearing and Mechanical Adjudication Violate Natural Justice

Issue:

Whether an adjudication order passed under Section 75 of the Central Goods and Services Tax Act, 2017 (CGST Act), is valid if it is passed without issuing a personal hearing notice to the assessee and without duly considering the assessee’s reply, thereby violating the principles of natural justice.

Facts:

For the period 2019-20, an adjudication order was passed. The assessee challenged this order, contending that they were not issued a personal hearing notice and that the order was passed without duly considering their reply to the show cause notice.

Decision:

The court ruled in favor of the assessee. It found that the adjudication order was passed in a mechanical manner, without duly considering the assessee’s reply or affording the assessee an opportunity to be heard. Since the assessee had not been afforded a proper opportunity to be heard, the adjudicating authority was directed to issue a notice for a personal hearing to the assessee. The reply filed by the assessee to the show cause notice, along with any submissions made during the personal hearing, were to be duly considered by the adjudicating authority, and a fresh order was to be passed in accordance with law. The matter was accordingly remanded.

Key Takeaways:

  • Mandatory Personal Hearing: The principles of natural justice, inherent in tax adjudication, require that the assessee be granted a personal hearing, especially when their submissions are not fully accepted or an adverse order is contemplated. Failure to issue a notice for a personal hearing is a grave procedural defect.
  • Non-Speaking Order/Mechanical Adjudication: An order that fails to reflect due consideration of the assessee’s reply or appears to have been passed in a mechanical manner, without applying a judicial mind to the specific contentions, is invalid. The order must be a “speaking order” demonstrating that all arguments have been addressed.
  • Violation of Natural Justice: Passing an order without affording a proper opportunity of being heard is a clear violation of natural justice, rendering the order legally unsustainable.
  • Remand for Fresh Adjudication: When such procedural infirmities are found, the High Court typically sets aside the impugned order and remands the matter back to the adjudicating authority for fresh consideration after ensuring compliance with natural justice principles.

II. Validity of GST Demand Limitation Period Extension Notifications Subject to Supreme Court Review

Issue:

Whether the validity of Notification No. 9/2023-Central Tax, dated 31-3-2023, and Notification No. 56/2023-Central Tax, dated 28-12-2023, issued by the Central Board of Indirect Taxes and Customs (CBIC), which extend limitation periods for GST demands, is legally valid.

Facts:

For the period 2019-20, the assessee challenged the validity of CBIC Notification No. 9/2023-Central Tax, dated 31-3-2023, and Notification No. 56/2023-Central Tax, dated 28-12-2023. These notifications are generally issued under Section 168A of the Central Goods and Services Tax Act, 2017, and its state counterparts, which empower the government to extend various time limits, often for the purpose of issuing demand orders.

Decision:

The court noted that a similar matter concerning the validity of these notifications was already pending consideration before the Supreme Court in S.L.P. No. 4240/2025, dated 21-2-2025. Therefore, the challenge made by the assessee to these notifications in the present proceedings would be subject to the outcome of the Supreme Court’s decision. The matter was stayed.

Key Takeaways:

  • Doctrine of Sub Judice: This decision demonstrates the principle of judicial deference, where a lower court defers its final decision on a crucial legal point when the same issue is under active consideration by a higher court, especially the Supreme Court. This ensures consistency and avoids conflicting judgments.
  • Scope of Section 168A: The legal challenge revolves around the interpretation and application of Section 168A of the CGST Act. This section is vital for allowing extensions of time limits in specific circumstances (e.g., force majeure), and its constitutional validity or the validity of extensions made thereunder is a significant legal question.
  • Impact on Demand Orders: The outcome of the Supreme Court’s decision will have widespread implications for numerous GST demand orders issued by tax authorities that rely on these extended limitation periods. If the notifications are held invalid, many demands might become time-barred.
  • Interim Relief for Assessee: The “matter stayed” status means that the proceedings related to the demand (specifically the aspect dependent on the validity of these notifications) are temporarily put on hold, awaiting the Supreme Court’s binding pronouncement. This offers interim relief to the assessee, but the final outcome remains contingent.
HIGH COURT OF DELHI
JM Traders
v.
Union of India
PRATHIBA M. SINGH and Rajneesh Kumar Gupta, JJ.
W.P.(C) No. 14937 OF 2024
CM APPL. No. 62651 OF 2024
MAY  6, 2025
Prabhat Kumar and Utkarsh Kumar, Advs. for the Petitioner. K.G. Gopalakrishnan, Sumit K. Batra and Ms. Nisha Mohandas, Advs. for the Respondent.
ORDER
Prathiba M. Singh, J. – This hearing has been done through hybrid mode.
2. The present petition has been filed by the Petitioner- JM Traders under Articles 226 & 227 of the Constitution of India challenging the show cause notice dated 28th May, 2024 (hereinafter, ‘the SCN’) issued by the Additional Commissioner, CGST, Delhi West, pertaining to the Financial Year 2019-20, as also the consequent order dated 28th August, 2024 passed by the office of Sales Tax Officer Class II/ AVATO, Delhi (hereinafter, ‘the impugned order.’)
3. The petition also challenges the vires of Notification No. 9/2023-Central Tax dated 31st March, 2023 and Notification No. 56/2023- Central Tax dated 28th December, 2023 (hereinafter ‘impugned notifications’).
4. The impugned notifications were under consideration before this Court in a batch of petitions with the lead petition being DJST Traders (P.) Ltd. v. Union of India
(Delhi)/ W.P.(C)16499/2023 on 22nd April, 2025, the parties were heard at length qua the validity of the impugned notifications and accordingly, the following order was passed:
“4. Submissions have been heard in part. The broad challenge to both sets of Notifications is on the ground that the proper procedure was not followed prior to the issuance of the same. In terms of Section 168A, prior recommendation of the GST Council is essential for extending deadlines. In respect of Notification no.9, the recommendation was made prior to the issuance of the same. However, insofar as Notification No. 56/2023 (Central Tax) the challenge is that the extension was granted contrary to the mandate under Section 168A of the Central Goods and Services Tax Act, 2017 and ratification was given subsequent to the issuance of the notification. The notification incorrectly states that it was on the recommendation of the GST Council. Insofar as the Notification No. 56 of 2023 (State Tax) is concerned, the challenge is to the effect that the same was issued on 11th July, 2024 after the expiry of the limitation in terms of the Notification No.13 of 2022 (State Tax).
5. In fact, Notification Nos. 09 and 56 of 2023 (Central Tax) were challenged before various other High Courts. The Allahabad Court has upheld the validity of Notification no.9. The Patna High Court has upheld the validity of Notification no.56. Whereas, the Guwahati High Court has quashed Notification No. 56 of 2023 (Central Tax).
6. The Telangana High Court while not delving into the vires of the assailed notifications, made certain observations in respect of invalidity of Notification No. 56 of 2023 (Central Tax). This judgment of the Telangana High Court is now presently under consideration by the Supreme Court in S.L.P No. 4240/2025 titled M/s HCC-SEW-MEIL-AAG JV v. Assistant Commissioner of State Tax & Ors. The Supreme Court vide order dated 21st February, 2025, passed the following order in the said case:

“1. The subject matter of challenge before the High Court was to the legality, validity and propriety of the Notification No.13/2022 dated 5-7-2022 & Notification Nos.9 and 56 of 2023 dated 31-3-2023 & 8-12-2023 respectively.

2. However, in the present petition, we are concerned with Notification Nos.9 & 56/2023 dated 31-3-2023 respectively.

3. These Notifications have been issued in the purported exercise of power under Section 168 (A) of the Central Goods and Services Tax Act. 2017 (for short, the “GST Act”).

4. We have heard Dr. S. Muralidhar, the learned Senior counsel appearing for the petitioner.

5. The issue that falls for the consideration of this Court is whether the time limit for adjudication of show cause notice and passing order under Section 73 of the GST Act and SGST Act (Telangana GST Act) for financial year 2019-2020 could have been extended by issuing the Notifications in question under Section 168-A of the GST Act.

6. There are many other issues also arising for consideration in this matter.

7. Dr. Muralidhar pointed out that there is a cleavage of opinion amongst different High Courts of the country. 8. Issue notice on the SLP as also on the prayer for interim relief, returnable on 7-32025.”

7. In the meantime, the challenges were also pending before the Bombay High Court and the Punjab and Haryana High Court. In the Punjab and Haryana High Court vide order dated 12th March, 2025, all the writ petitions have been disposed of in terms of the interim orders passed therein. The operative portion of the said order reads as under:

“65. Almost all the issues, which have been raised before us in these present connected cases and have been noticed hereinabove, are the subject matter of the Hon’ble Supreme Court in the aforesaid SLP.

66. Keeping in view the judicial discipline, we refrain from giving our opinion with respect to the vires of Section 168-A of the Act as well as the notifications issued in purported exercise of power under Section 168-A of the Act which have been challenged, and we direct that all these present connected cases shall be governed by the judgment passed by the Hon’ble Supreme Court and the decision thereto shall be binding on these cases too.

67. Since the matter is pending before the Hon’ble Supreme Court, the interim order passed in the present cases, would continue to operate and would be governed by the final adjudication by the Supreme Court on the issues in the aforesaid SLP-4240-2025.

68. In view of the aforesaid, all these connected cases are disposed of accordingly along with pending applications, if any.”

8.The Court has heard Id. Counsels for the parties for a substantial period today. A perusal of the above would show that various High Courts have taken a view and the matter is squarely now pending before the Supreme Court.
9.Apart from the challenge to the notifications itself, various counsels submit that even if the same are upheld, they would still pray for relief for the parties as the Petitioners have been unable to file replies due to several reasons and were unable to avail of personal hearings in most cases. In effect therefore in most cases the adjudication orders are passed ex-parte. Huge demands have been raised and even penalties have been imposed.
10.Broadly, there are six categories of cases which are pending before this Court. While the issue concerning the validity of the impugned notifications is presently under consideration before the Supreme Court, this Court is of the prima facie view that, depending upon the categories of petitions, orders can be passed affording an opportunity to the Petitioners to place their stand before the adjudicating authority. In some cases, proceedings including appellate remedies may be permitted to be pursued by the Petitioners, without delving into the question of the validity of the said notifications at this stage.
11.The said categories and proposed reliefs have been broadly put to the parties today. They may seek instructions and revert by tomorrow i.e., 23rd April, 2025. “
5. Thereafter, on 23rd April, 2025, this Court, having noted that the validity of the impugned notifications is under consideration before the Supreme Court, had disposed of several matters in the said batch of petitions after addressing other factual issues raised in the respective petitions. Additionally, while disposing of the said petitions, this Court clearly observed that the validity of the impugned notifications therein shall be subject to the outcome of the proceedings before the Supreme Court.
6. In the present case, the submission of the Petitioner, on facts, is that a reply dated 21st June, 2024, along with supporting documents was filed by the Petitioner to the SCN dated 28th May, 2024.
7. However, it is stated that no personal hearing notice was issued to the Petitioner and the impugned order was passed without affording the Petitioner with an opportunity to be heard.
8. It is further submitted that the Goods & Services Tax Identification Number (hereinafter, ‘GSTIN’) Registration of the Petitioner stood retrospectively cancelled from 29th November, 2018 vide an order for cancellation of registration dated 14th March, 2023. Hence, the impugned order is a non-speaking order and is liable to be set aside on the said ground.
9. Heard. The Court has considered the submissions made.
10. A perusal of the impugned order reveals that the date fixed for personal hearing of the Petitioner is 28th August, 2024 which is the same as the date on which the impugned order has been passed. Further, the relevant portion of the impugned order reads as under:
“Observations and conclusion of the assessing authority:
Not Agreed with Tax Payer
Specific reasons entered
Despite opportunities for personal hearing including notice under section 75(4) of the CGST/DGST Act and Rules, the taxpayer has not appeared till date. The taxpayer has only submitted online reply and the reply filed by the taxpayer is neither proper nor satisfactory. No satisfactory reply/explanation has been received from the taxpayer despite adequate and repeated opportunities being given. Hence demand created accordingly.”
11. A reading of the impugned order makes it clear that the same has been passed in a mechanical manner without duly considering the reply of the Petitioner or affording the Petitioner with an opportunity to be heard.
12. This Court is of the opinion that since the Petitioner has not been afforded an opportunity to be heard and the said SCN and the consequent impugned order have been passed without hearing the Petitioner, an opportunity ought to be afforded to the Petitioner to contest the matter on merits.
13. Accordingly, the impugned order is set aside. The Adjudicating Authority shall issue to the Petitioner, a notice for personal hearing. The personal hearing notice shall be communicated to the Petitioner by 10th July, 2025, on the following mobile no. and e-mail address:
Mobile No.: 9312315121
E-mail Address : prabhat@rklegal. org
14. The reply dated 21st June, 2024, filed by the Petitioner to the SCN along with the submissions made in the personal hearing proceedings shall be duly considered by the Adjudicating Authority and a fresh order with respect to the SCN shall be passed in accordance with law.
15. However, it is made clear that the issue in respect of the validity of the impugned notifications is left open. Any order passed by the Adjudicating Authority shall be subject to the outcome of the decision of the Supreme Court in HCC-SEW-MEIL-AAG JV v. Asstt. Commissioner of State Tax [S.L.P No. 4240 of 2025, dated 21-2-2025]
16. All rights and remedies of the parties are left open. Access to the GST Portal shall be provided to the Petitioner to enable uploading of necessary documents, if any, as also to access the notices and related documents.
17. The present writ petition is disposed of in above terms. All the pending applications, if any, are also disposed of.